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Table Of Contents

Participants
Settlement of Transactions
TRANSACTIONS IN INTERBANK MARKETS
Two Way Quotations
Direct Quotation
Indirect quotation
Spot and Forward transactions
Forward Margin/Swap points
Interpretation of Interbank quotations
Spot rate
Factors Determining Spot Exchange Rates
Transfer of Purchasing Power
Provision of credit
Provision of Heding Facilities
Methods of Affecting International Payments
Transfers
Cheques and Bank Drafts
Foreign Bill of Exchange
Futures
Options
Swap operation
Arbitrage
Characteristics of forward contracts
Determining Forward Prices
Foreign Exchange Transactions
Purchase and Sale transactions
Exchange Quotations
Exchange Margin
Principal types of Buying Rates
(i)TT Buying Rate (TT stands for Telegraphic Transfer)
(ii)Bill Buying Rate
Principle types of selling rates
1. TT Selling Rate
2. Bills Selling Rate
Forward Margin/Swap Points
Foreign Currency/Dollar Quotation
Cross Rates and Chain Rule
Various rules of FEDAI
Application of Rates of Crystallization of Liabilities and Recovers
CRYSTALLISATION OF IMPORT BILLS (RULES 30
INTEREST ON EXPORT BILLS/NORMAL TRANSIT PERIOD
INTEREST ON IMPORT BILLS
EXCHANGE CONTRACTS
SWAP Cost:
Outlay and inflow of funds:
Exchange Control in India
UNIT-II
Objectives:
Structure
1.2. Exchange Rate Systems
1.3. The Gold Standard (1876 – 1913):
1.3.1. Advantages of Gold Standard:
1.3.2. Disadvantages of Gold Standard:
1.3.3. Causes of the Break-down of the Gold Standard
1.4. Bretton Woods (1944):
1.4.1. The Special Drawing Rights (SDRs):
1.5 Fixed Vs Floating Exchange Rate Systems:
1.5.1. Fixed Exchange Rates, 1945-1973
1.5.2. An Eclectic Currency Arrangement, 1973-Present
1.5.3. Fixed versus Flexible Exchange Rates:
1.5.3.1. Global Scenario of Exchange Rate Arrangements:
1.5.4. Attributes of the Ideal Currency:
1.5.4.1. Essentials of a Sound Currency System:
1.6.Summary:
Glossary:
Bretton Woods Agreement:
1.7.Self Assessment Questions:
1.9. Further Readings:
Lesson 2: Determinants of Exchange Rates
1.2 Introduction:
1.2. Potential Exchange Rate Determinants
Exhibit 1
Potential Foreign Exchange Rate Determinants
1.3.Balance of Payments Approach
1.4.1. Prices and Exchange Rates:
1.4.2. Purchasing Power Parity and the Law of One Price:
1.4.3. Relative Purchasing Power Parity:
1.4.4. Exchange Rate Indices: Real and Nominal:
1.5. Interest Rates and Exchange Rates
1.5.1. The Fisher Effect:
1.5.2. The International Fisher Effect:
1.5.3.Interest Rate Parity:
1.5.4. Covered Interest Arbitrage:
1.5.5. Forward Rate as an Unbiased Predictor of the Future Spot Rate:
1.6. The Asset Market Approach
1.7. Technical Analysis
Exhibit 2
Exchange Rate Forecasting in Practice
Forecast Period Regime Recommended Forecast Methods
1.8. Summary
1.9.Glossary
1.10. Self Assessment Questions
1.11. Further Readings
Lesson 3: Exchange Controls
1.3 Introduction:
1.1.1. Typical Currency Control Measures:
1.1.2. Objectives of Exchange Control:
1.2. Possible Courses of exchange control:
1.2.1. Under-Valuation
1.2.2. Over-Valuation
1.3. Methods of Exchange Control:
1.3.1. Influencing Exchange Rate
1.4. Forms of Exchange Control:
1.4.1. Exchange Pegging:
1.4.2. Exchange Equalisation Account:
1.4.3. Other Exchange Control Devices:
1.8.Summary
1.9.Glossary:
1.10. Self Assessment Questions:
1.8 Further Readings:
UNIT-III
CHAPTER 1
FOREIGN EXCHANGE TRANSACTIONS
FOREIGN EXCHANGE -- MEANING:
FOREIGN EXCHANGE RATE:
FOREIGN EXCHANGE MARKET:
Balance of Payments:
Relative Inflation Rates:
TRANSACTIONS UNDER DIRECT AND INDIRECT QUOTATIONS:
TWO WAY QUOTATIONS:
SPOT AND FORWARD TRANSACTIONS:
Cross Rates:
Cross rates and Chain rule:
Exchange quotations in international markets:
Forward Margin/Swap Points
Dollar/Foreign Currency Quotation
DETERMINATION OF FORWARD EXCHANGE RATES:
Calculation of forward margin:
FACTORS DETERMINING FORWARD MARGIN:
Rate of Interest:
Demand and Supply:
Speculation about Spot Rates:
Exchange Regulations:
Summary and Conclusions:
Model questions:
CHAPTER 2
MERCHANT RATES AND INTER BANK TRANSACTIONS
Basis for Merchant Rates:
Exchange Margin:
Fineness of Quotation:
DIFFERENT MODES OF FOREIGN EXCHANGE REMITTANCES:
Types of Buying Rates
1. TT Buying Rate (TT stands for Telegraphic Transfer)
2. Bill Buying Rate
Recovery of Interest on Bills Purchased:
100 x 365
Types of Selling Rates:
1. TT Selling Rate
2. Bills Selling Rate
Some aspects of exchange quotation
Spread Between TT Rates:
Selling Rates
FORWARD EXCHANGE CONTRACT
FEATURES OF FORWARD EXCHANGE CONTRACT
FEDAI GUIDELINES FOR FORWARD CONTRACTS: RULE NO 7
Fixed and Option Forward Contracts
Computation of Forward Exchange Rates
Fixed Forward Contracts:
Calculation of Option Forward Rates
Execution of Forward Contract
Early Delivery
Cancellation/Extension of forward contract
Cancellation of Forward Contract on Due date
Early Cancellation of a Forward Contract:
Extension on Due date
Overdue Forward Contracts
Roll over Forward Contracts
Inter bank Deals
Cover Deals
Trading:
Swap Deals:
Swap and Deposit/Investment:
Currency Arbitrage
MODEL QUESTIONS:
OBJECTIVES OF UNIT IV
UNIT IV STRUCTURE:
1. Introduction
1.1 Meaning of Foreign Exchange Market
Rate of Exchange Under the Gold Standard:
Rate of Exchange Under Managed Paper Standard
Rate of Exchange Under Exchange Control
1.3 Participants in foreign Exchange Market
1.4 Quotations in the Interbank Market
1.5 Meaning of Ready, Spot and Forward Transaction
1.6 Meaning and Factors of Forward Margins/Swap Points
Factors Determining Forward Margin
Rate of Interest
Demand and Supply of Foreign Currency
Investment Activities
Speculative Activities Regarding Spot Rates
1.7 Factors Determining Spot Exchange Rates
Balance of Payments
Interest Rates
Money Supply
Discoveries of New Resources
Speculation and Psychological Factors
Principal Types of Buying Rates
TT Buying Rate (TT Stands for Telegraphic Transfer)
Bill Buying Rate
TT Selling Rate
Bills Selling Rate
1.9 Ready Rates Based on Cross Rates
Exchange Quotations in International Markets
Date of Delivery
Fixed and Options Forward Contracts
Exchange Control Regulations
Booking of Forward Contracts
Calculation of Fixed Forward Rates
Format for Calculation of Forward Selling Rate
Calculation option forward rates
1.11 Execution of Forward Contract
Delivery on Due Date
Cancellation on Due Date
Extension on Due Date
Early Extension
1.13 Exchange Dealings
Dealing Position
Exchange Position
Cash Position
1.14 Interbank Deals
Trading
Funding of Nostro Account
Swap Deals
Arbitrage Operations
1.15 Forex Risk Management
Open Position Risk
Cash Balance Risk
Maturity Mismatches Risk
Credit Risk
Country Risk
Overtrading Risk
Fraud Risk
1.16 Summary
1.17 Self-Assessment Question:-
The process by which the M.N.Cs manage
Future Contracts
Special Features of Futures and Forward Markets:
Forward Market:
Market Operations:
An Illustrative Example:
Clearing House and Clearing Margins:
Hedging in the Futures Market:
Reference:
REVIEW QUESTIONS:
Lesson Outline:
By reading this lesson you would be able to understand:
The Definition or the Basic Terms:
Structure of the Market
2. Whole Sale Market
Currency call Options:
Hedging in the call Option Market:
Speculating in the call Option Market:
The speculator will:
Hedging Currency Positions (Various Options)
Hedging Currency Positions with Foreign Currency Options:
Hedging with Currency Futures and Contracts:
Currency Options for whom i.e. who needs Currency Options
The concept
After studying this lesson you would be able to understand:
Market
The concept of the SWAPS:
Growth of the SWAP Market:
The basic SWAP Structures
The Currency SWAP Market: Main Features
The oldest and the most creative sector:
Most Interesting Sector of the Swap Market:
The Primary and the Secondary Sector:
The Creativity:
Individual Demand and Supply Interplay:
Dollar’s Domination:
Highly Opportunistic Sub-sector:
New Breed of Financial Management:
Position-taking and Market-making:
The fixed rate currency Swap:
Following are the main steps to all currency swaps:
2. Ongoing Exchanges of Interest:
3. Re-exchange of the Principal Amounts:
The Currency Coupon SWAP:
The Basis Rates
SWAP Risk and Exposure
Essentials for reducing Swap risks:
market
2. The secondary market
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2 7008323 Forex Management A

2 7008323 Forex Management A

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Published by: discoverlibin on Aug 25, 2010
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10/30/2011

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